The consensus here at the Bretton Woods conference of INET, the Soros-underwritten Institute for New Economic Thinking, is that finance can be put back in its cage—as a technical matter. But there doesn’t seem to be a political appetite to do the job right, because finance is so all-bloody powerful despite its central role in crashing the economy. Pretty amazing, that. This conference is also an oasis of respite from the group think afflicting most economic policy discussions that commend austerity as the cure for a deep slump. Keynes would whirl in his grave. Back in July 1944, the godfathers of the postwar economic system chose this place for their famous conference because Maynard Keynes, already suffering from advanced heart disease, did not want to suffer pre-air-conditioned Washington in midsummer. According to Keynes’ great biographer, Robert Skidelsky (who is here), Harry White, the leading American architect of the Bretton Woods system, called around and found this dowager resort hotel, which could be reached in those years by train. The star of the Saturday program is Richard Koo, chief economist of Japan’s Nomura Research Institute, probably Japan’s most respected economist. Koo’s point is that the austerity being commended in most western countries will prolong this recession indefinitely. When Japan’s property bubble burst in 1991, Koo says, property values declined massively in Tokyo and Kyoto. Banks suffered massive losses. But the Japanese government counteracted the effect by massive public works spending—not two years worth like the Obama stimulus, but more than a decade’s worth. And then, advised by the IMF and the US to cut its deficit, Koo reported, Japan ended its stimulus too soon. Still, the Japanese avoided a depression, because their government was willing to make up for the loss of business and household demand. Japan was finally climbing out of recession when the tsunami hit. But despite a very large public debt, Japan’s government will finance a recovery again and this will be far superior than succumbing to the austerity virus. Here is a link to an earlier version of Koo’s amazing presentation. http://ineteconomics.org/sites/inet.civicactions.net/files/INETOS-KooPresentation_0.pdf Gordon Brown, the former British Prime Minister, was the lunch speaker. Brown is a deft speaker, not nearly as dour as he seemed while in government. Asked why his Labour government legislated so much financial deregulation, which proved so disastrous, he responded bluntly, “We were under relentless pressure from the City [London’s financial district]; They argued that they were overregulated. We didn’t understand the entanglements of institutions.” But giving into the financial industry was a political choice that the Blair-Brown regime willingly made. And the interlocking nature of finance was not exactly a secret. Brown also contended that with adequate international coordination, finance can be properly regulated. But if national governments are captured by their financial elites, global regulation is that much harder. It is a little hard to concentrate, given the stunning view of the still snowy Presidential Range, capped by majestic Mount Washington. A high point of the day was playing hooky from one panel and taking a long walk towards the mountains, with Robert Skidelsky and Jamie Galbraith. We succeeded in depressing each other, arguing about whether the obstacles to real reform of a globalized financial system were more political or technical. I argued for political, which is slightly less depressing. It suggests that the system can be reformed. All we have do is elect progressive governments in the major nations. (!) That’s all.
